Department of Economics Spring 2019 Brown Bag Series

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Date(s) - 02/11/2019
12:00 pm - 1:00 pm

Andrew G. Clark Building

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The Brown Bag Seminar Series offers current ECON graduate students the opportunity to present ongoing research or to workshop new ideas. The seminars are held on Mondays from 12:00-1:00pm in Clark C307 and are open to everyone.

For more information on the series or specific seminars, please contact Sarah Small at or Nina Poerbonegoro at

February 11th’s presenter is ECON PhD. graduate student Uthman Baqais. The title of his presentation is: “Wealth Composition, Value Effect, and Upstream Capital Flows.”

Abstract: A stable stream of foreign capital flows plays a critical role in the development process by augmenting capital stock accumulation and sustaining current account deficits of a country. In contrast to the efficient allocation implied by the neoclassical growth theory, Lucas (1990) shows that very little capital flows into developing economies. Moreover, recent studies demonstrate even a stronger phenomenon known as the allocation puzzle or upstream capital flows. That is, fast-growing emerging markets have associated with net capital outflows on average (e.g., Gourinchas and Jeanne 2013). While previous studies provide explanations about cross-country differences in human capital (Lucas 1990), institutional quality (Alfaro et. al. 2008), I argue that the upstream capital flows are much explained by differences in natural resources in the era of financial globalization. In this study, I treat capital stock more broadly than the standard neoclassical model in terms of wealth accumulation, comprising physical capital, human capital, natural capital, and net foreign assets. By exploiting a recent advancement in constructing wealth database by the World Bank, I find that the wealth composition matters in explaining capital flow movements across 108 countries over 1995-2015. More importantly, results from the typical proxy suggest that subsoil natural resources explain much of the upstream capital flows in a period of commodity price boom. Nevertheless, results alter when I use a proxy for net total capital inflows that incorporates valuation effects. In sum, measures of wealth and proxies for capital inflows should be considered carefully in studying the patterns of international capital flows. Results from the typical proxy suggest that capital mobility allows subsoil resource-rich countries to invest their resource rents abroad. Therefore, the inclusion of natural capital emphasizes the role of economic management whether to channel rents toward productive investment and human capital to industrialize the economy, or to accumulate foreign assets that keep foreign exchange rates at desirable levels.

February 11th’s seminar will be held in Clark C361.